Fisker's road to bad karma

April 12, 2013

Updated March 27, 2015 3:21 a.m.

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A Fisker Karma is displayed at Fisker of Orange County in Irvine in a photo from 2012. Fisker Automotive plans to close its Anaheim headquarters if it doesn't find a buyer or more financing. STEVEN GEORGES, FOR THE REGISTER

March 13, 2013: Henrik Fisker resigns, citing irreconcilable conflicts with other top officials.

March 22, 2013: Fisker places its remaining 220 workers on a one-week furlough.

April 5, 2013: Fisker lays off three-fourths of its workers to save money. The remaining employees are on furlough. The company tells the state it may close its Anaheim headquarters by June if it can't find a buyer or investor.

A Fisker Karma is displayed at Fisker of Orange County in Irvine in a photo from 2012. Fisker Automotive plans to close its Anaheim headquarters if it doesn't find a buyer or more financing. STEVEN GEORGES, FOR THE REGISTER

Fisker Automotive and its head-turning electric-gas hybrid automobile, the $100,000 Karma, are at death's door. The company laid off 160 of its remaining 219 employees earlier this month, hasn't made any cars since last July and says it will close its Anaheim headquarters if CEO Tony Posawatz can't find a new source of financing.

Meanwhile, 380 miles up the road in Palo Alto, another electric car company – Tesla – said last week it is nearing its first quarter of profitability.

Tesla is by no means assured of success. But its improving prospects stand in stark contrast to the collapse of Fisker. Which raises the question: Who or what killed the Karma?

Interviews with former Fisker employees, analysts, car owners and the car's creator, Henrik Fisker, paint a picture of a startup that faced a steep climb from the start.

The Karma hit speed bumps the moment its tires touched the road. Cash was short. The market for electric cars hasn't live up to expectations.

And the company's executives were never able to get ahead of an incredible run of bad luck.

Here's a look at the key turning points in Fisker's short, fast life.

Fisker: The man, the car

Fisker Automotive grew out of Fisker Coachbuild, an Irvine firm founded in 2005 by car designer Henrik Fisker and his design and business partner, Bernhard Koehler. Their vision for the new company: to create high-performance, environmentally friendly vehicles. Before that, the pair worked together at Aston Martin and BMW designing cars like the V8 Vantage and Z8 – variations of the flashy vehicles driven by James Bond himself.

Car buffs got their first glimpse of the sleek Karma concept car at the North American International Auto Show in Detroit in January 2008. The plan was to start shipping $80,000 cars in late 2009, featuring an electric powertrain working with a small gas generator to boost power and extend range.

The powertrain – which would propel the Karma from a standing start to 60 mph in 6.3 seconds – was provided by Irvine's Quantum Fuel Systems Technologies. The gas generator came from General Motors and the battery came from A123 Systems based in Massachusetts.

But the Karma would show up two years late. Its starting price had ballooned as well, to $100,000-plus.

One reason for the delay was the Karma took longer than expected to get Environmental Protection Agency and California Air Resources Board certification.

But Tesla was faster off the mark from the start. Its first vehicle, the similarly priced Roadster, was shown in 2006 and delivered in 2008. When the first Karma was ready to ship to U.S. owners from its factory in Finland in late 2011, Tesla was moving on to the higher-volume Model S, which began selling last year with a starting price of $62,400 (after a $7,500 tax credit).

As in other cutting-edge technology, being first to market among the new generation of high-performance electric sports cars stamped the Tesla name as a leader and a brand unto itself. Kleenex is to tissues what Tesla is to electric vehicles, said Brett Smith, co-director for manufacturing, engineering and technology at the Center for Automotive Research in Michigan.

Since going on sale in 2011, Fisker has sold more than 1,500 Karmas. Tesla said it shipped 4,750 of the Model S in the first quarter.

Also working in Tesla's favor was the dynamic leadership of its founder, Elon Musk. The billionaire co-founder of Internet payments giant PayPal branched out into space travel and solar energy, as well as electric cars. Just last week, Musk personally guaranteed a leasing agreement in which owners can sell back their Model S to Tesla at a high value.

Fisker famously had early celebrity backers driving his cars, including Justin Bieber. But that couldn't stack up against the wealth and élan of Musk, who served as the model for Tony Stark of the "Iron Man" movies.

"There wasn't this fawning over Henrik Fisker like there was over Elon Musk," Smith said. Fisker "needed someone to run the marketing of the company. That's what Elon Musk has done for Tesla in so many ways ... someone who can go out there and sell the company not with just credibility but with this aura of invincibility."

There were more concrete problems for Fisker, though, that a big-picture car executive might have headed off.

For instance, Fisker placed all its battery hopes on A123, a once-promising maker of lithium-ion batteries, similar to the technology used in laptops and the troubled Boeing 787 Dreamliner. That decision blew up on Fisker in spectacular fashion when a Karma froze up during a Consumer Reports test drive and had to be towed away.

Soon A123 promised to replace faulty batteries in Karmas at a cost of $55 million. A few months later, it was bankrupt.

(The Consumer Reports fiasco was just one example of how the Karma seemed to be cursed. Last summer, one of the cars burst into flames across the street from Buck's, a Silicon Valley restaurant frequented by venture capitalists. That led to a recall.)

Former Fisker employees say Henrik Fisker empowered them to speak up and trust their judgment, and that decisions there could be made in 30 seconds that would take weeks at other companies.

But after a string of problems – the late deliveries and the U.S. Department of Energy cutting off Fisker's loan – Henrik Fisker was moved into a design role in February 2012. Tom LaSorda, an investor and sea-ï€¥soned automotive leader who once ran Chrysler, took over temporarily. Five months later he handed the wheel to Tony Posawatz, who headed development of the Chevrolet Volt plug-in hybrid.

Analysts spoke highly of those car-industry veterans, as did former employees. But the transition may have come too late.

"It's always a good move to bring in folks that have experience that perhaps you don't have yourself," said Alec Gutierrez, senior analyst at Kelley Blue Book. "It may have been a move that should've been made potentially quite earlier."

Driven by design

The soul of the company left the day Henrik Fisker resigned last month, citing irreconcilable differences with management, said former employees.

Even workers who later lost their jobs at Fisker still gush over the car they produced and the attention to detail the company founder demanded of them.

"There's one thing we got right – the design," said Wayne Karro, who worked in finance at Fisker for more than three years, as he walked out of the headquarters with his layoff papers in hand last Friday.

The Karma won luxury car of the year from BBC's "Top Gear" in 2011 and design of the year in 2012 from Automobile Magazine. Motor Trend magazine called the car one of its top 10 future classics and Fast Company selected it for an "innovation by design" award for transportation.

While Tesla relies entirely upon finding a power outlet to charge up the vehicle (and waiting hours for it to re-charge), and the Prius is primarily a gas vehicle with electric technology that gives it extra mileage, the Karma is an electric first, with a gas generator on board to increase range.

Central to the Fisker concept was its commitment to being "green." Fairuz Jane Schlecht was the head of sustainability, hired by Fisker personally. When Fisker wanted wood and leather inside the Karma, it was up to Schlecht to figure out how to make that as friendly to the environment as possible.

Once, after driving up by the 241 Toll Road, Schlecht got the idea of using burned out trees killed by California wildfires in the vehicle's interior detailing. She demanded from the supplier a certificate documenting the authenticity of wood in the car, which was slipped into the owner's manual.

For the leather seat covers, Schlecht insisted upon using a larger portion of the animal hide so that it introduced imperfections. When seats were assembled in the Czech Republic, the supplier stopped production because it was concerned about the look. She flew out and approved the seats one by one.

"We wanted to bring change, ultimately," said Augusto Landestoy, who worked on the Karma's user experience. "We wanted to do something really cool.

"Karma made sense to us. It was our way...to put a middle finger to big oil. We're going to use electric and if someone has solar panels on their house they might be able to charge their car without a drop of gas."

But cool as it looked, the car didn't wow everyone who drove it. Consumer Reports, putting aside its initial run-in with the dead battery, still gave the Karma a failing grade. Its review called it "eye catching" but flawed, citing "poor dash controls, limited visibility, a cramped interior." Perhaps most painfully, the publication said the Karma "lacks the oomph you would expect" for a luxury sports car.

"There's so much more to a car than design. Design is what turns your head and gets your interest in a vehicle, but it has to be manufactured, marketed and distributed. It has to meet more regulations (than probably) any product that we have," said Michelle Krebs, a senior analyst with car site Edmunds.com. "It's more than a pretty car."

Starved for cash

Early on, Fisker Automotive was backed by Silicon Valley investment firm Kleiner Perkins Caufield & Byers, where former Democratic Vice President Al Gore is a partner. Later rounds of private investment totaled more than $1.2 billion.

But it was the backing of the federal government that drew critics.

In December 2007, President Bush signed the Energy Independence and Security Act of 2007, which authorized a Department of Energy loan program to support advanced-technology vehicles. In 2008, $7.5 billion was appropriated by the Democrat-controlled Congress.

By September 2009, with President Barack Obama in office and the Great Recession in full swing, four automakers were chosen under the program – $5.9 billion went to Ford, $1.4 billion to Nissan, $465 million to Tesla and $528.7 million to Fisker.

When the election cycle kicked into high gear three years later, the loan programs came under fire by Republicans. The bankruptcy of government-backed solar power company Solyndra made that company a poster child for misguided U.S. industrial policy. With Fisker, it appeared U.S. taxpayer money was going to an unproven company that was assembling its first cars in Finland.

The loan designated $169.3 million to help finish the Karma. The remainder was to go to help build a second, lower-cost vehicle, the Atlantic, at a shuttered General Motors plant in Delaware.

The government cut off $336 million from Fisker's loan in May 2011, citing missed production milestones.

Former employees said they were under intense pressure to deliver on not just one, but two vehicles.

When the Register asked Henrik Fisker if the government loan forced him to pursue the Atlantic quicker than he would have otherwise, he answered "no." Fisker declined to say whether he had other financing options.

"Plug-in hybrids and electric cars are still new technologies, so components are made in relative low volume. Just like when mobile phones or flat screen TV's came out, the technology was expensive," Fisker said in an e-mail. "This is the reason Fisker decided to start with a high end car and then move to a lower cost car once the technology has matured and higher volume of parts would lower the cost."

Now, with Fisker in danger of failing – its Anaheim landlord filed a suit this week in Santa Ana claiming the company owes $174,000 in April rent – it is falling under increased scrutiny. A subcommittee under Darrell Issa, R-Vista, Chairman of the House Committee on Oversight and Government Reform, has asked Fisker, Posawatz, Koehler and two energy department officials to testify about the government's loan before the Subcommittee on Economic Growth on April 24.

Proponents of the loans see them as in keeping with earlier efforts to spark early-stage technologies, such as aircraft and semiconductors. Critics say the government is notoriously bad at choosing winners and that the subsidies distort investment choices.

"Fisker Automotive is a very timely case study of what happens when the Department of Energy plays venture capitalist with taxpayer money," said subcommittee Chairman Jim Jordan, R-Ohio, in a prepared statement. He said the hearing will explore "how DOE expects the American taxpayer will be repaid for the nearly two hundred million dollars already sunk into this company."

The slow development of the electric-car market didn't help Fisker. The Obama Administration's goal was to have 1 million electric vehicles by 2015; according to Bloomberg, about 87,000 electrics and plug-ins have been sold in the U.S. so far.

But the bottom line, auto analysts said, is that Fisker's funding – from all sources – was a drop in the bucket compared to what was needed to successfully launch a new car, let alone two. Nissan committed $5 billion to develop and manufacture electric vehicles and batteries, while Toyota has spent more than $10 billion over 16 years to develop the Prius line, according to Reuters.

"It was just that the economics don't make sense yet," said Smith, from the Center for Automotive Research. "Yes, you can be sustainable – but does that really convince enough people to spend that much money on a technology that's truly unproven? I don't think so."

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